M/s BDR Projects Pvt. Ltd., Hyderabad V. ACIT, Hyderabad

ITA 954/HYD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2466 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2009
• Appeal Filed By: Assessee
• Bench Allotted: DB-A
• Next Hearing Date: 21-12-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 17-08-2009
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: ANGENEULU
• Keywords: Unexplained cash credit; Business income; TDS; Set aside
• Section: 234B; 192; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI. G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.954/HYD/09 : ASSTT. YEAR 200 6-07 M/S. BDR PROJECTS (P) LTD. HYDERABAD (AAACB8263 D) VS THE ACIT CIRCLE 1(3), HYDERABAD. APPELLANT BY : SHRI. ANGENEULU RESPONDENT BY : SHRI K.V.N. CH ARYA O R D E R PER SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL PREFERRED BY ASSESSEE IS DIRECTED AGAINST ORDER PASSED BY THE LEARNED CIT(A) II, HYDERABAD DATED 12.6.2009 FOR THE ASSESSMENT YEAR 2006-07. THE FIRST IN THIS APPEAL I S AS FOLLOWS: I) THE ORDER OF THE LEARNED APPELLATE AUTHORITY IS SO FA R SUSTAINING THE INVOCATION OF PROVISION OF SEC. 40A(IA) AND RESTRICT ING THE ADHOC ADDITION TO 10% IS ERRONEOUS IN LAW, CONTRARY TO FACTS AND AGAINST THE PRINCIPLES OF EQUITY AND NATURAL JUSTI CE. II) THE CIT(A) ERRED IN LAW BY SUSTAINING THE INVOCATION O F SECTION 40A(IA) TOWARDS THE PAYMENTS MADE BY THE ASSESSEE DIRECTLY TO DIFFERENT LABOURERS ENGAGED BY IT IN EXECUTION OF THE WORK IN THE ABSENCE OF ANY AGREEMENT TO ATTRACT THE TDS PROVISI ONS. THEREFORE, THE SUSTENTATION OF ADDITION IS UNJUSTIFIE D, UNWARRANTED AND AGAINST BOTH IN LAW AND ON FACTS. 2. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE ARGUMENT OF THE LEARNED COUNSEL OF THE ASSESSEE IS THAT THE SECTION 40(A) (IA) APPLIES TO CASES IN WHICH THE 2 HIRE CHARGES ARE PAYABLE AND NOT APPLICABLE TO THE A MOUNTS WHICH HAS BEEN ALREADY PAID. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE FOLLOWING JUDGEMENTS: I) M/S SOUTHERN AGRO ENGINE (P) LTD. VS. UNION OF INDIA (170 TAXMAN 468) (MAD) II) M/S DEYS MEDICAL (UP) (P) LTD. VS. UNION OF IND IA (HC ALLAHABAD) (216 CTR 83) HE SUBMITTED THAT SUB CLAUSES (I), (IA) AND (IB) SUBSTIT UTED FOR SUB CLAUSES (I) TO SECTION 40 BY THE FINANCE ACT (NO.2) ACT, 2 004 WITH EFFECT FROM 1.4.2005 AND ALSO DREW OUR ATTENTION TO T HE MEMORANDUM EXPLAINING THE CLAUSES WHICH READS AS FOLLOWS: CLAUSE 11 OF THE BILL TO SEEK TO AMEND SECTION 40 OF T HE IT ACT RELATING TO AMOUNTS NOT DEDUCTIBLE. THE PROPOSED AMENDMENT SEE KS TO INSERT A NEW SUB CLAUSE (IA) IN CLAUSE (A) OF THE SAID SECTION SO A S TO PROVIDE THAT ANY INTEREST, COMMISSION OR BROKERAGE, FEES FOR PRO FESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES, PAYABLE TO A RESIDEN T OR AMOUNT CREDITED OR PAID TO A CONTRACTOR OR SUB CONTRACTOR BEING A RESIDENT FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) ON WHICH TAX HAS NOT BEEN DEDUCTED OR, AFTER DED UCTION HAS NOT BEEN PAID BEFORE THE EXPIRY OF THE TIME PRESCRIBED UN DER SUB SECTION (1) OF SECTION 200 AND IN ACCORDANCE WITH THE OTHER PRO VISIONS OF CHAPTER XVII B SHALL NOT BE ALLOWED AS DEDUCTION IN COM PUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT IS FURTHER PROPOSED TO PROVIDE THAT WHE RE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED UNDER CHAPTER XVII-B OR PAID IN ANY SUBSEQUENT YEAR, SUCH SUM SHALL BE ALLOWED AS DEDUCTION NIN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN 3 PAID. IT IS ALSO PROPOSED TO DEFINE THE EXPRESSIONS COMM ISSION OR BROKERAGE, FEES FOR TECHNICAL SERVICES, PROFESSIONAL SERV ICES AND WORK USED IN THE PROPOSED NEW CLAUSE (IA). THIS AMENDMENT WILL TAKE EFFECT FROM 1 ST APRIL, 2005, AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 20 05-06 AND SUBSEQUENT YEARS. 2.1. FURTHER HE SUBMITTED THAT A STATUTE IS A CREATUR E OF THE LEGISLATURE. EVERY STATUTE HAS ITS PREAMBLE; IT HAS OBJ ECTS AND REASONS FOR WHICH IT WAS ENACTED. TO FIND OUT THE CORRECT MEANI NG OF A PARTICULAR PROVISION OF THE STATUTE, IT IS THE DUTY OF THE COURT OF LAW TO EXAMINE NOT ONLY THE WORDS OF THE SAID PROVISION BUT A LSO THE BACKGROUND IN WHICH SUCH LAW IS ENACTED. EVERY STATUTE M UST BE GIVEN A LOGICAL MEANING AND HARMONIOUS CONSTRUCTION. THE WORD S USED IN THE STATUTE ARE NOT USED FOR NOTHING,. EACH AND EVERY WORD HAS ITS SIGNIFICANCE. IT IS A DUTY OF THE JUDICIARY TO INTERPR ET THE SAME FOR ITS IMPLEMENTATION AS AND WHEN THEY ARE APPROACHED. 2.2. IN OUR OPINION, THIS ISSUE ALREADY DECIDED BY TH E COORDINATE BENCH IN THE CASE OF M/S TEJA CONSTRUCTIONS IN ITA NO.308/HYD/2009 FOR THE ASSESSMENT YEAR 2005-06 VIDE OR DER DATED 23.10.2009 WHEREIN IT WAS HELD AS FOLLOWS: 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE MATERIAL ON RECORD. IN THIS CASE, MAIN CONTENTION OF THE ASSESSEE'S COU NSEL IS THAT, ONCE THE BOOKS OF ACCOUNT ARE REJECTED, INCOME IS ESTIMA TED, THE ASSESSING OFFICER PRECLUDED FROM INVOKING ANY OTHER PROVISIONS OF THE IT ACT TO MAKE FURTHER ADDITION. WE FIND FORCE IN THIS ARGUMENT. THE BOO KS OF ACCOUNT OF THE ASSESSEE WAS NOT RELIED, IT WAS REJECTED BY THE ASS ESSING OFFICER AND THE SAME WAS CONFIRMED BY THE CIT(A) AS WELL AS BY US. NOW, BASED ON THE RELIANCE ON THE SAME BOOKS, FOR THE PURPOSE OF INVO KING THE PROVISIONS OF 40A (IA) IS IMPROPER. THE ESTIMATION OF INCOME TAK EN CARE OF THE IRREGULARITIES COMMITTED BY THE ASSESSEE. FURTHER, ADDITION BY INVOKING S. 40 A (IA) AMOUNTS TO PUNISHING THE ASSESSEE FOR A S AME OFFENCE ON DOUBLE OCCASIONS, WHICH IS NOT PERMITTED BY LAW. THERE IS A CONNECTION BETWEEN EXPENDITURE CLAIMED BY THE ASSESSEE AND MAKING NON DEDUCTION OF TDS. SINCE THE BOOKS OF ACCOUNT NOT VERIFIABLE, FOR WHIC H THE ASSESSEE BOOKS WAS REJECTED AND INCOME WAS DETERMINED. IT WAS HELD IN THE CASE OF CIT VS. DEVI PRASAD VISWANATH PRASAD (72 ITR 192 THAT) (SC)' WH ERE A PARTICULAR BUSINESS INCOME OF THE ASSESSEE HAS BEEN ESTIMATED AND DETERMINED AND IN SUCH A CASE, THE ASSESSING OFFICER PRECLUDED FROM A DDING ANY UNEXPLAINED CASH CREDIT AS UNDISCLOSED INCOME OF THE BUSINESS ' . 4 12. FURTHER, THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT, STRICT INTERPRETATION OF STATUTE TO BE MADE. HE RELIED ON THE JUDGEMENT OF ACIT, ASSESSMENT II BANGALORE & OTHERS VS. VELL IAPPA TEXTILES LTD. & OTHERS (263 ITR 550) (SC) WHEREIN IT WAS HELD: ' 'III) A COURT CANNOT BREACH A CASUS OMISSUS AND NO CANON OF CONSTRUCTION PERMITS THE COURT TO SUPPLY A LACUNAE IN A STATUTE: NOR CAN COURTS OF LAW FILL UP THE LACUNA IN AN ILL DRAFTED AND HASTY LEGISLATI ON. WHETHER THE OMISSION IS INTENTIONAL OR INADVERTENT IS NO CONCERN OF THE COURT. THE DUTY OF THE COURT IS TO DECIDE WHAT THE LAW IS AN APPLY IT, NOT TO MAKE IT. IV) SINCE THE FUNCTION OF THE COURT OF LAW IS JUS D ICERE AND NO JUS DARE, THE COURT OF LAW CANNOT READ THE RECOMMENDATIONS OF THE LAW COMMISSION AS JUSTIFYING AN INTERPRETATION OF THE SECTION IN TUNE WITH THEM, EVEN WHEN THE WORDS OF THE SECTION ARE PLAIN AND UNAMBIGUOUS' WE FIND FORCE IN THIS ARGUMENT OF THE ASSESSEE'S COUN SEL. S. 40A (IA) READS AS UNDER: '40. AMOUNTS NOT DEDUCTIBLE: NOTWITHSTANDING ANYTHIN G TO THE CONTRARY IN SS.30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN CO MPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFE SSION- A) IN THE CASE OF ANY ASSESSEE I) . (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RE SIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB CONTRACTOR, BEING RESIDENT, FOR CARR YING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION HAS NOT BEEN PAID (A) IN THE CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO D EDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, ON OR BEFORE THE DUE DATE SPECIFIED IN SUB. S(1) OF S.139 OR (B) IN ANY OTHER CASE, ON OR BEFORE THE LAST THE BARE PROVISION OF S.40(A) (IA) PROVIDES FOR NON D EDUCTION OF AMOUNT WHICH REMAINS PAYABLE TO A RESIDENT IN RESPECT OF FEES FOR TE CHNICAL SERVICES ETC. IT IS NOT APPLICABLE WHERE EXPENDITURE IS PAID. IT IS APPLICABLE ONLY IN CASES WHERE THE PAYMENTS ARE DUE AND OUTSTANDING. THE WORD PAYABLE IS NO T DEFINED THOUGH THE WORD PAID IS DEFINED UNDER S.43(2) TO MEAN ACTUALLY PAID OR INCURRED. HENCE, BY IMPLICATION THE WORD PAYABLE DOES NOT ACTUALLY PAID OR I NCURRED. HENCE, BY IMPLICATION THE WORD PAYABLE DOES NOT INCLUDE PAID. THE DIFFERENCE IN THE WORD PAID AND PAYABLE IS ALSO THERE IN THE RULES FOR DEPOSITING THE TDS AND ALSO FOR LEVY OF INTEREST U/S 234B WHERE INTEREST IS WORKED OUT ON T HE BASIS OF TAX ACTUALLY DEDUCTED AT SOURCE AND NOT ON THE BASIS OF TAX DEDUCTIBLE. S.40( A) (IA) OTHERWISE BEING A LEGAL FICTION NEEDS TO BE CONSTRUED STRICTLY IN VIEWS OF THE DECISION OF SC IN CIT VS. MOTHER INDIA REFRIGERATION INDUSTRIES (P) LTD. 1985 48 CTR ( SC) 176: 1985 155 ITR 711 (SC). THE CBDT CIRCULAR NO.5 OF 2005 DATED 15TH JULY , 2005 197 CTR (ST) 1 HAS ALSO CLARIFIED THAT THE PROVISION OF THE S.40(A) (IA) IS TO AUGMENT COMPLIANCE OF TDS PROVISION IN THE CASE OF RESIDENTS AND CURB BOGUS PAYM ENTS TO THEM. IN THE PRESENT CASE THE PAYMENT IS NOT IN DISPUTE AND ON THE ISSUE WH ETHER TAX IS TO BE DEDUCTED AT SOURCE ON SUCH PAYMENT IS NOT FREE FROM DOUBT. IN AN Y CASE, IF THE ASSESSEE HAS PAID THE IMPUGNED AMOUNT AND NOT PAYABLE AT THE END OF THE Y EAR ON THE DATE OF BALANCE SHEET, THEN THE PROVISIONS OF S.40A (IA) NOT APPLICABLE . IT IS ONLY APPLICABLE IN RESPECT OF PAYABLE AMOUNT SHOWN IN THE BALANCE SHEET AS OUTSTANDING EXPENSES ON WHICH TDS HAS NOT BEEN MADE. FURTHER, TAX IS DEDUCTIB LE U/S 193, 194A, 194C, 194H AND 194J EITHER AT THE TIME OF PAYMENT OR AT THE TIME O F GIVING CREDIT TO THE 5 RECIPIENT. HOWEVER, SEC. 40A (IA) IS APPLICABLE ONLY IN RESPECT OF TDS CAPITAL DEFAULTS AMOUNT IS PAYABLE. IF AMOUNT IS ACTUALLY PAID AND TAX IS NOT DEDUCTED UNDER THE ABOVE SECTION, SEC.40A (IA) IS NOT APPLICABLE. THERE IS DIFFERENT BETWEEN THE WORD PAID OR PAYABLE , THE LEGISLATURE USED THE WORD VER Y CAREFULLY IN S.40A(IA) AND IN ALL ITS WISDOM AT THE TIME OF INCORPORATING THE SECTIO N BY WAY OF FINANCE (NO.2) BILL, 2004. IT WAS INSERTED IN SEC. 40A(IA) THAT THE AMOUNT O N PAYABLE TO CONTRACTOR OR SUB CONTRACTOR LIABLE FOR DISALLOWANCE, ITS TDS NOT DED UCTED. ( SEC. 40A (IA) HAS TO BE SUBJECTED TO STRICT INTERPRETATION. GOING BY THE RULE OF STRICT INTERPRETATION THE DEFAULT WITH REFERENCE TO ACTUAL PAYMENT OF EXPENDITU RE WOULD NOT ENTAIL DISALLOWANCE. THIS IS BECAUSE, THE LANGUAGE USED IN TH E SECTION 40A (IA) IS VERY SIMPLE, CLEAR AND UNAMBIGUOUS. LITERAL RULE OF INTERP RETATION HAS TO BE APPLIED. THE SPEECH OF FINANCE MINISTER OR EVEN OTHER PROVISIONS OF THE ACT CAN BE PRESSED INTO SERVICE IF THERE IS SOME AMBIGUITY ABOUT THE MEANING O F THE SECTION. BUT THE SAME WAS NOT THE CASE IN THE INSTANT CASE. EVEN THE PRINCI PLES OF LIBERAL INTERPRETATION CANNOT BE APPLIED WHERE THE LANGUAGE IS CLEAR, SIMPLE, AND THE MEANING OF THE WORD IS APPARENT. AS SUCH, WE ARE OF THE VIEW THAT PROVIS IONS OF S.40(A) (IA) ARE NOT APPLICABLE IN THE PRESENT FACTS OF THE CASE.' THE DIS ALLOWANCE, IF ANY REQUIRED TO BE MADE SHALL BE RESTRICTED TO THE EXTENT OF PAYABLE SHOW N IN THE BALANCE SHEET AT THE END OF THE YEAR. HOWEVER, THIS IS NOT THE CASE IN TH E PRESENT CASE BECAUSE ONCE THE ESTIMATION OF INCOME IS MADE, FURTHER DISALLOWANCE ARE UNWARRANTED. 13. FURTHER IN THE CASE OF SHRI N. RAMACHANDRA REDDY IT A.1372/07 THE TRIBUNAL ORDER VIDE DATED 6/3/2009 HELD AS FOLLOWS ON THE SIMI LAR CIRCUMSTANCES. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THERE ARE DEFECTS AND DISCREPANCIES IN THE BOOKS OF ACCOUNT NOTED BY THE ASSESSING OFFICER AS WELL AS THE CIT(A). THE ASSESSING OFFICER ON THAT GROUN D HAS NOT REJECTED THE BOOKS OF ACCOUNT, BUT PROCEEDING ON THE BASIS OF RE TURNED INCOME OF RS.24,92,428, MADE SUBSTANTIAL ADDITIONS INCLUDING STATUTORY DISALLOWANCE OF RS.3,92,08,601 UNDER S.40(A)(IA) OF THE ACT. HE THUS, COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.5,04,75,532 AS A GAINST RETURNED INCOME OF RS.24,92,428, ON A TOTAL UNDISPUTED TURNOVER OF RS.8,14,78,527. WHEN THE ASSESSING OFFICER FOUND THE BOOKS OF ACCOUNT AN D OTHER RECORDS MAINTAINED BY THE ASSESSEE TO BE DEFECTIVE, IN ALL FAIRNESS, HE SHOULD HAVE REJECTED THE SAME AND PROCEEDED TO ESTIMATE THE INC OME AS A REASONABLE PERCENTAGE OF TURNOVER, INSTEAD OF PREFERRING TO ST ART WITH THE RETURNED INCOME AND MAKES SUBSTANTIAL ITEM -WISE STATUTORY/OTHERWISE ADDITIONS/DISALLOWANCES. FACED WITH SUBSTANTIALLY E XORBITANT ADDITIONS TO THE RETURNED INCOME OF RS.24,92,428, WHICH RESULTED IN THE DETERMINATION OF ASSESSEES INCOME BY THE ASSESSING OFFICER AT AN AB NORMAL RATE 64% OF THE GROSS RECEIPTS, IN THE COURSE OF APPELLATE PROCEEDI NGS, THE ASSESSEE FILED AN AFFIDAVIT, PROPOSING BEFORE THE CIT(A) TO REJECT TH E BOOKS OF ACCOUNT FOR THE DEFECTS AND DISCREPANCIES NOTICED AND ESTIMATE THE NET INCOME FROM CONTRACTS AT THE RATE OF 13% OF THE GROSS RECEIPTS. EVEN THOUGH THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS AND ES TIMATED THE INCOME, SINCE THE POWERS OF APPELLATE COMMISSIONER ARE CO-T ERMINUS WITH THOSE OF THE ASSESSING OFFICER, THE CIT(A) IN OUR CONSIDERED VIEW WAS COMPETENT AND JUSTIFIED IN REJECTING THE BOOKS MAINTAINED BY THE ASSESSEE, FOR THE DEFICIENCIES THEREIN, NOTICED EVEN BY THE ASSESSING OFFICER, AND PROCEEDING TO DETERMINE THE INCOME AT THE RATE PROPOSED BY THE ASSESSEE. AFTER CAREFULLY EXAMINING THE AFFIDAVIT OF THE ASSESSEE, WHICH HAS ALSO BEEN EXTRACTED BY THE CIT(A) ON PAGES 13 TO 14 OF IMPUGN ED ORDER, THE CIT(A) ACCEPTING THE PROPOSAL OF THE ASSESSEE, ESTIMATED T HE INCOME OF THE 6 ASSESSEE AT 13% OF THE GROSS RECEIPTS COMPUTED AT R S.8,14,78,527 AD DETERMINED THE TOTAL INCOME INCLUDING BANK INTEREST , AT RS.1,07,47,807. ON A CAREFUL CONSIDERATION OF THE MATTER IN THE LI GHT OF THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). IN THE FIRST PLACE, WE MAY NOTE THAT IN THE ASSESSEES LINE OF BUSINESS, VIZ. EXECUTION OF CIVI L CONTRACTS, THE RATE OF 13% PROPOSED BY THE ASSESSEE AND ACCEPTED BY THE CIT(A) FOR ESTIMATION OF ASSESSEES NET INCOME FROM CONTRACTS IS NOT ONLY RE ASONABLE, BUT ALSO ON A HIGHER SIDE COMPARED TO THE RATE APPROVED BY THIS T RIBUNAL IN SIMILAR CASES. IF THE ASSESSEE HIMSELF HAS COME FORWARD WITH SUCH A HIGHER RATE FOR ESTIMATION OF PROFIT, IT IS BECAUSE HE IS FACED WIT H SEVERAL OTHER STATUTORY/OTHERWISE ADDITIONS MADE BY THE ASSESSING OFFICER, WHICH IF SUSTAINED BY THE CIT(A), WOULD RESULT IN DETERMINAT ION OF ITS INCOME AT A VERY SUBSTANTIALLY HIGHER RATE OF 64% OR EVEN MORE THAN 100% IF SEPARATE DISALLOWANCE UNDER S.40A(3) IS ALSO CONSIDERED. TH E FACT THAT THE ASSESSEE HAS MADE THIS OFFER FOR ESTIMATION OF INCOME AT A H IGHER RATE OF 13%, IS ALSO EVIDENT FROM THE RIDER HE PUT IN THE CONCLUDING SEN TENCE OF THE PENULTIMATE PARA OF HIS AFFIDAVIT, WHICH READS AS FOLLOWS- THIS STATEMENT AND AFFIRMATION ARE MADE SUBJECT T O THE POINT THAT NO OTHER ADVERSE INFERENCES ARE DRAWN AND NO OTHER PROCEEDIN GS UNDER THE INCOME TAX ACT FOR THE SAID ASSESSMENT CONSEQUENT TO THE STATE MENT AND AFFIRMATION ARE INVOKED. ON A CLOSE READING OF THE ABOVE PROVISIONS, IT I S OBSERVED THAT THOUGH THE ABOVE PROVISIONS STIPULATE A STATUTORY D ISALLOWANCE, LEAVING NO SCOPE FOR ANY DISCRETION OR LENIENT VIEW CONSIDERIN G THE PECULIAR CIRCUMSTANCES UNDER WHICH PAYMENTS CAUGHT BY THE SC HEME OF S.40(A)(IA) HAVE BEEN MADE, THE NON-OBSTANTE CLAUSE NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, WITH WHICH THE PROVISIONS OF S.40 BEGIN, TAKE THE ITEMS OF EXPENSES COVERED BY THE PROVISIONS OF S.30 TO 38 ALONE WITHIN THE AMBIT OF S.40, AND ANY ITEM OF EXPENDITURE ALLO WABLE UNDER THE PROVISIONS OF THE ACT, PRECEDING S.30, ARE NOT COVE RED BY THE SAID STATUTORY DISALLOWANCES ENVISAGED UNDER S.40. IT MAY ALSO BE OBSERVED THAT IF AN ASSESSEE CLAIMS ANY EXPENDITURE AS NECESSARY TO EARN THE BUSINESS INCOME AND AS SUCH THE SAME IS ALLOWABLE U/S 28; A ND NOT U/S 37, BECAUSE SECTION 28 TAXES PROFITS OF THE BUSINESS WHICH CAN BE WORKED OUT ONLY AFTER ALLOWING EXPENDITURE, SUCH EXPENDITURE GOES OUT OF THE CLUTCHES OF THE DISALLOWANCES IN TERMS OF THE PROVISIONS OF S.40. IN THIS VIEW OF THE MATTER, AN ASSESSEE MAY CLAIM ALL HIS EXPENDITURE, EXCEPT FOR THOSE WHICH ARE CLEARLY COVERED BY SOME OTHER SECTIONS E.G. SECTION 30 COVERING RENT, RATES, TAXES, INSURANCE, ETC., AS ALLOWABLE U/S 28. IT MA Y FURTHER BE OBSERVED THAT ALL THE EXPENDITURE, JUST AS LABOUR CHARGES IN THE INSTANT CASE, WHICH REPRESENTS DIRECT COSTS AND THEREFORE, ADJUSTABLE A GAINST REVENUE FOR THE PURPOSE OF DETERMINING THE PROFIT U/S 28(I) OF THE ACT, DO NOT COME WITHIN THE PROVISIONS U/S 40(A)(IA). AS SUCH, IT MAY BE OBSERVED THAT IT IS ONLY THE DEDUCTIONS REFERRED TO IN S.30 TO 38 WHICH WOULD DE FINITELY FALL FOR CONSIDERATION OF DISALLOWANCE U/S 40 AND THEY CANNO T BE CLAIMED AS DEDUCTION U/S 28. THIS REASONING APPLIES WITH EQUAL FORCE TO THE ANALOGOUS PROVISIONS OF S.43, S.44AD, S.44AE, S.44AF, S.44B, S.44BB, S.44ABA, S.44BBB, S.44C, S.44D, AND SO ON WHICH ALL RELATE T O COMPUTATION OF BUSINESS INCOME AND CLEARLY START WITH A NONOBSTIN ATE CLAUSE, WHICH IS SIMILAR TO THE ONE IN S.40, BUT READING NOTWITHSTANDING ANYTHING TO THE 7 CONTRARY IN SECTIONS 28 TO 43C . IN THIS VIEW OF THE MATTER, IT MAY BE OBSERVED THAT THE PROVISIONS OF S.40(A)(IA) ARE APP LICABLE ONLY TO ITEMS COVERED BY SECTION 30 TO SECTION 38 AND NOT TO SE CTION 28 AND ALL THE DIRECT COST/ EXPENDITURE COVERED BY SECTION 28 OF T HE ACT, ARE BEYOND THE SCOPE OF DISALLOWANCE UNDER S.40(A)(IA) OF THE ACT. AS FOR THE PERMISSIBILITY OF THE INDEPENDENT DIS ALLOWANCE IN TERMS OF S.40(A)(IA), AFTER DETERMINING THE INCOME BY RESORTING TO ESTIMATION AS A PERCENTAGE OF TURNOVER/GROSS RECEIP TS, WE FIND THAT IN THE CASE OF INDWELL CONSTRUCTIONS V/S. CIT (232 ITR 776 ) IT HAS BEEN CLEARLY HELD THAT WHERE THE BOOKS OF ACCOUNT HAVE BEEN REJE CTED, THE REVENUE CANNOT RELY ON THE SAME BOOKS OF ACCOUNT FOR ADDIT ION OF AN EXACT AMOUNT OF EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. IT WAS ALSO HELD IN THAT CASE THAT WHEN AN ESTIMATE IS MADE, IT IS IN SUBSTITUTIO N OF THE INCOME THAT IS TO BE COMPUTED UNDER S.29 AND IN OTHER WORDS, ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER S.29 ARE DEEMED TO HAVE BEEN TAKE N INTO ACCOUNT, WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN, THE HIGH COURT OBSERVED, THE EMBARGO PLACED IN S.40 IS ALSO TAKEN INTO ACCOUNT. IT HAS BEEN HELD IN THE CONCLUDING PARAS 4 AND 5 OF THAT DECISION AS FOLLOW S: 4. THE PATTERN OF ASSESSMENT UNDER THE IT ACT IS G IVEN BY S.29 WHICH STATES THAT THE INCOME FROM PROFITS AND GAINS OF BU SINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN S.30 TO 43D. SEC.40 PROVIDES FOR CERTAIN DISALLOWANCES IN CERTAIN CASES NOTWITHSTAND ING THAT THOSE AMOUNTS ARE ALLOWED GENERALLY UNDER OTHER SECTIONS. THE COMPUTA TION UNDER S.29 IS TO BE MADE UNDER S.145 ON THE BASIS OF THE BOOKS REGULARL Y MAINTAINED BY THE ASSESSEE. IF THOSE BOOKS ARE NOT CORRECT OR COMPLE TE, THE ITO MAY REJECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE BEST OF HIS JU DGMENT. WHEN SUCH AN ESTIMATE IS MADE IT IS IN SUBSTITUTION OF THE INCOM E THAT IS TO BE COMPUTED UNDER S.29. IN OTHER WORDS, ALL THE DEDUCTIONS WHI CH ARE REFERRED TO UNDER S.29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MA KING SUCH AN ESTIMATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN S.45 0 IS ALSO TAKEN INTO ACCOUNT. 5. NO DOUBT THERE IS BIG DIFFERENCE BETWEEN PROFIT EARNED WITH OWN CAPITAL AND PROFIT EARNED WITH BORROWED CAPITAL AND SUCH A DIFFERENCE COULD HAVE BEEN TAKEN INTO ACCOUNT BY THE ITO WHILE MAKING AN ESTIM ATE. IF THE CIT HAD SET ASIDE THE ESTIMATE ON THE GROUND THAT THE VITAL FAC T THAT THE BUSINESS WAS CARRIED ON WITH OWN CAPITAL AND NOT WITH BORROWED C APITAL HAS BEEN IGNORED BY THE ITO, THERE MAY NOT HAVE BEEN ANY DIFFICULTY IN UPHOLDING THAT ORDER. BUT, WHEN HE PROPOSES TO ADD BACK AN EXACT ITEM IN THE P &L A/C., HE WAS RELYING ON THE REJECTED BOOKS WHICH HE COULD NOT DO AS HELD BY THE BENCH OF THIS COURT IN MADDI SUDARSANAM OIL MILLLS CO. VS. CIT (SUPRA). T HERE IS ALSO A FURTHER DIFFICULTY IF S.40, AS ARGUED BY LEARNED COUNSEL, I S TO BE TAKEN INTO ACCOUNT EVEN AFTER MAKING AN ESTIMATE. WHEN THERE ARE CERTAIN OT HER DEDUCTIONS WHICH ARE TO BE DISALLOWED SUCH AS WEALTH-TAX PAYMENT IN S.4, CAN IT BE SAID THAT AFTER MAKING AN ESTIMATE, THE WEALTH-TAX CHARGED IN THE P &L A/C. SHOULD AGAIN BE ADDED BACK TO THE PROFIT. THIS EXAMPLE, ILLUSTRATE S HOW THE CONTENTION OF THE REVENUE, THAT S.40(B) MAKES A DIFFERENCE IN THE SIT UATION, IS UNTENABLE. THE ABOVE DECISION OF THE A.P. HIGH COURT HAS BEEN FOLLOWED AND A SIMILAR VIEW HAS BEEN TAKEN BY THE SPECIAL BENCH (K OLKATA) OF THIS TRIBUNAL IN THE CASE OF ITO VS. KENARAM SAHA AND SUBHASH S AHA (301 ITR (AT) 171), WHEREIN DISALLOWANCE MADE IN TERMS OF S.40A(3 ) HAS BEEN DELETED. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL HIGH COURT IN THE CASE OF INDWELL CORPORATION (SUPRA), BESIDES THE SP ECIAL BENCH DECISION OF THIS TRIBUNAL NOTED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE INCOME OF THE ASSESSEE HAVING BEEN DETERMINED BY RESORTING TO ESTIMATION, THERE IS 8 NO SCOPE FOR ANY FURTHER DISALLOWANCE EITHER IN TER MS OF S.40(A)(IA)/40A(3) OR OTHERWISE. IN THE LIGHT OF THE ABOVE DISCUSSION, WE UPHOLD TH E IMPUGNED ORDER OF THE CIT(A) AND REJECT THE GROUNDS OF THE REVENUE IN THIS APPEAL. 13. IN THIS VIEW OF THE MATTER, WE ARE UNABLE TO U PHOLD THE ACTION OF CIT(A) IN CONFIRMING THE DISALLOWANCE U/S 40A(IA ) OF THE IT ACT. THE SAME IS DELETED. 3. RESPECTFULLY FOLLOWING RATIO LAID DOWN BY THE COO RDINATE BENCH, HYDERABAD IN THE CASE OF M/S TEJA CONSTRUCTIONS CITED SUP RA WE ARE INCLINED TO SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFF ICER TO DISALLOW ONLY SUCH EXPENSES WHICH ARE DEBITED TO THE PRO FIT AND LOSS ACCOUNT WITHOUT MAKING ACTUAL PAYMENT AND BY MAKING PR OVISION TOWARDS SAID LIABILITY IN THE BALANCE SHEET AND WHICH IS YET TO BE PAID AS ON THE DATE OF BALANCE SHEET. WE ALSO CAME ACROSS SIMILA R KIND OF ORDER IN THE CASE OF JAIPUR VIDHYUT VITARNA NIGAM LTD . VS. DCIT (123 TTJ 888)(2009). FURTHER, THE JUDGEMENT RELIED BY TH E DEPARTMENTAL REPRESENTATIVE ARE RELATING TO THE UPHOLDING THE CON STITUTIONAL VALIDITY OF THE PROVISIONS OF SECTION 40(A) (IA) AND NOT RELATIN G TO THE APPLICABILITY OF SECTION 40(A) (IA). ACCORDINGLY, THIS GROUND OF APPEAL PARTLY ALLOWED. 4. THE NEXT GROUNDS IN APPEAL ARE AS FOLLOWS: I) THE CIT(A) OUGHT NOT TO HAVE SUSTAINED 10% OF THE AD HOC ADDITION OUT OF 20% MADE BY THE ASSESSING OFFICER TOWAR DS EXPENDITURE WITHOUT ANY BASE OR MATERIAL EVIDENCE ON RECORD. THEREFORE, THE ADDITION SHALL BE DELETED. II) THE ASSESSEE CRAVES TO SUBMIT THAT, ALL THE FACTS, CONTENTIONS AND CASE LAWS MENTIONED IN THE STATEMENT OF FACTS ACCOMPANIED THESE GROUNDS OF APPEAL, SHALL BE TREATE D AS PART AND PARCEL OF THESE GROUNDS AND SHALL BE DEALT W ITH. 9 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE, THE ASSESSING OFFICER D ISALLOWED 20% OF THE EXPENDITURE OF RS.72,23,095 WORKS OUT AT R S.14,14,619 ON ACCOUNT OF CASH PAYMENTS NOT SUPPORTED BY PROPER VOUCHERS. THE CIT(A) ON APPEAL DISALLOWED THE SAME AT 10% SINCE IN HI S OPINION 20% DISALLOWANCE WILL BE ON THE HIGHER SIDE. IN OUR OPINI ON, THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE ON ACCOUNT OF CASH P AYMENT BY DOUBTING THE GENUINENESS OF THE PAYMENTS. MOST OF THE VOUCHERS ARE SELF MADE AND NOT SUPPORTED BY THIRD PARTIES VOUCHERS. IT IS THE DUTY OF THE ASSESSEE TO PRODUCE THE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM. THE ONLY BOOK ENTRY NOT ENOUGH TO PROVE THE GENUINENESS OF THE PAYMENTS. IT SHOULD BE SUPPORTED BY PROPER BILLS , VOUCHERS AND RECEIPTS. IN THE ABSENCE OF THESE THINGS, DISALLOWANCE IS W ARRANTED. AFTER GOING THROUGH THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR OPINION, THE CIT(A) IS VERY REASONABLE IN SUSTAINI NG THE 10% OF DISALLOWANCE OUT OF 20% DISALLOWED BY THE ASSESSING OFFICER ON ACCOUNT OF NON PRODUCTION OF PROPER VOUCHERS. THE VIEW TAKEN BY THE CIT(A) IS CONFIRMED. THESE GROUNDS OF THE ASSESSEE ARE DISMISSED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 23. 12.2 009 SD/- SD/- (G.C. GUPTA) (CHANDRA POOJARI) VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 23 RD DECEMBER, 2009. 10 COPY FORWARDED TO: 1. M/S ANJANEYULU & CO., CA, 30, BHAGYALAKSHMI NAGAR, GANDHI NAGAR, HYDERABAD-500080. 2. THE DCIT CIRCLE 1(3), HYDERABAD 3. CIT(A)-II, HYDERABAD. 4. THE D.R., ITAT, HYDERABAD. NP